This is Bloomberg Daybreak Asia for this Tuesday, April twenty fifth in Hong Kong, Monday April twenty fourth in New York and coming up today.
First Republic Bank is pursuing strategic options as it reports a slump in first quarter deposits.
Credit Suie saw sixty nine billion dollars of outflows last quarter as it near to collapse.
And China's Poloit Bureau is likely to shift its focus from stimulus to reforms.
China distances itself from its French ambassador and supports former Soviet Bloc country sovereignty. Australia Defense Ministry says the military must make adjustments to be fit for purpose. McCarthy looks to be going ahead with debt vote. I'm Ed Baxter with Global News.
That's all straight ahead on Bloomberg day Break Asia, The business news you need to start your day in just one fifteen minute podcast available on Apples, Spotify, the Bloomberg Business app and everywhere you get podcasts.
Good morning, I'm Doug Chrisner and I'm Brian Curtiz. Here are the stories we're following today. First Republic saying it's pursuing strategic options. Now and seeking to shrink its balance sheet. That's after it reported deposits that fell to one hundred four point five billion in the first quarter. Deposits are down forty one percent from the end of last year. The California Lendo was engulfed in the regional banking turmoil that led to the collapse of three of its peers.
First Republic.
Slump also comes despite the largest US lenders injecting some thirty billion dollars of their own cash into the bank to try to help shore up the finances in response to the unprecedented outflows of deposits. The company says now that it plans to cut its workforce as much as twenty five percent. We heard earlier from Bloomberg's Herman Chen.
They talked about some expense reductions with some employee cuts. That helps on the margin, but really instill confidence is more focused on stabilizing the balance sheet and getting those deposits back that left in the first quarter.
And the bank's shares are down a little more than twenty one percent now.
In late trading, well clients had credit Sueeze pulled sixty nine billion dollars from the bank during the first quarter. As the bank neared collapse, and now UBS will have big challenges ahead following that emergency takeover of its biggest rival. We have more from Bloomberg's Manis Kranny.
Over the past six months, one hundred and seventy billion Swiss ranks of assets that yield for the bank have exited. The question now is what can UBS do to stop that rot when the deal closes? What can they offer clients? How can they make them stay? How can they make the rain makers within the institution of Credit Suite remain. The message was clear, we will make more substantial losses in wealth management from Credit Suie. We had to tap the Swiss National Bank for one hundred billion and more
of liquidity. This is far from done. The challenges are significant for Colin kalaher Ikbal Khan and Sergio Motty, the CEO of UBS, on getting this flow show to stay and generate income in Zurich. On Manistrane.
All right, let's take a closer look here at Tesla, because it's increasing its forecast for capex again and looks to be targeting nine billion dollars in twenty twenty three, according to a regulatory filing as of January Tesla provided a forecast range that was a billion less.
At both the low and the high end.
Tesla's capex boost comes while executives have been emphasizing cost cutting efforts. Bloombergs Ed Ludlow says it's being done with an emphasis on sustaining growth.
They're cutting prices on evs here in North America, they did recently just re raise prices on Mode less and Model X, and internally a view on cutting costs is a big focus. But reminder of Elon musk commitment to sustaining growth at the expense of margin and profit. That's something that he's been relatively clear on.
And while the cell side at least are.
A little concern about the impact of price cuts to products on that bottom line, at least Tesla is consistent on the view of investing through periods like this to maintain that growth rate.
Tesla shows are down one and a half percent in the regular sash and drifting just a little bit lower here in after hours. Not much about an extra four tenths of one percent overall, though the stock has risen some thirty four percent this year.
A second round of job cuts underway at Walt Disney We have more from Bloomberg's and.
Kate's play also take place in all Disney divisions, from corporate headquarters to ESPN, although hourly workers at its theme parks will not be affected. It's part of Disney's push to eliminate seven thousand positions in an effort to save five and a half billion dollars a year in costs. The entertainment giant is also racing to curb losses at its Disney Plus streaming service, as Wall Street shifts as focused from subscriber growth to the expense of operating online
video platforms. In Washington and Kates Bloomberg day Break Asia.
China's top leaders may convene a meeting of the party's politbureau this week to tweak economic policy.
We get the story from Bloomberg's Joan Wong.
Officials are looking to boost business confidence, increase jobs, and strengthen the property market without adding new stimulus. Economists say they're closely watching monetary and fiscal support now that growth is rebounding. Several banks have raised as there are China growth forecasts to six percent or higher for twenty twenty three. That's well above Beijing's target of around five percent, and that level of growth would reduce the need for more stimulus.
Some economists say it could be too soon, as though as opposed, COVID recovery has been fairly uneven. But the PBOC has already signaled it will begin dialing back pandemic stimulus, and the thinking is officials may pull back further. In Hong Kong, I'm joined Wong Bloomberg day Brigeisia.
I'm Brian Curtis along with Doug Krisner and Rashad Salamat and Doug. Nothing's really rattling page right now in markets. It's still the banking turmoil that didn't quite become a crisis, and yet the stocks haven't recovered.
The regional banking stocks haven't recovered.
And I don't think the earnings from First Republic today changed that at all.
Well, you're right about that, and then there's the FED story on top of that. Right now, it's kind of interesting to see the divergence. On one hand, we have the swaps market continuing to see rates peaking in the coming weeks and then a series of cuts later in the year, So that seems to be the view of money market traders, right and then you look at the other story data from the CFTCS showing that net short positions on the ten year rose to the highest level on record this month.
So the hedge fund community seems to be betting that the Fed will continue to raise rates. And look at today's data from the Dallas Fed Manufacturing week, but it's clear that inflationary pressures remain very elevated. So it's this tension in markets right now.
Brian, Yeah, but the hedge fund position also indicates that they're not expecting recession, and I think that story is still to be written.
That's another way of looking at it. But maybe it's a period of stagflation. That's what Bloomberg Economics is saying, Right, you get slow growth, but yet inflation remains persistent. Going back to that Dallas Fed stuff, the wages and benefits component of the manufacturing report now at the highest level since August. Ninety nine percent of the firm surveyed by the Dallas Fed reported higher or similar wages and benefit cost in the month. So this it remains sticky. Let me just say that.
I think for most of the people we talked to, they acknowledge that this is one of the most difficult times to really understand and or predict whether we're heading toward recession or whether or not you escape this with a soft landing. It makes it great for us to put these questions to our guests. And we'll have Carol Pepper coming up shortly, founder and CEO of Pepper International.
But now it's time for Global news. China has sought to distance itself from the firestorm caused by its ambassador to France and those comments from yesterday and back to with Global News from the nine to sixty newsroom in San Francisco.
Ed, Yeah, exactly right, Brian. China says the comments by Ambassador at Lui Chu that former Soviet Bloc states are not sovereign nations was an expression of his personal point of view at a Beijing breast briefing. Spokes One mal And ning through a translator.
Ye, China respects the status of the former Soviet republics and sovereign countries after the Soviet Unis dissolution.
Now I'm ao saying the media has blown it out of proportion, and former Ambassador to China Paul Volker on Bloomberg sound On earlier said they don't like to contradict themselves, but the fact that they took down a transcript of loose comments shows they don't approve if you.
Start playing through the implications, like you're now saying that Kazakhspan a neighbor of China and a vast one in which China has huge interests, that that should actually be part of right. I don't think the Chinese mean that.
Meanwhile, France President Maniu mccron also distancing himself, saying it's not a diplomat's place to use this sort of language. Major Australian Defense Minister report has recommended sweeping changes to the country's defense forces as it readjusts to a changing into Pacific region. The Defense Strategic Reviews says Australia's military is not fit for purpose. Defense Minister Richard Marle says this will provide for an Australian defense force befitting a
much more confident and self reliant nation. Meanwhile, US President Joe Biden will use this week's state visit by South Korean President Unsukiol to undersco support there, including being ready to step up its efforts to tour North Korean attack on the South. US House speaker Kevin McCarthy looks to be going ahead with a vote without the possibility of amendments for his debt sealing bill, even though Bloomberg Reporting says he may come up short on votes from the
ultra conservative part of of his party now. Bloomberg's Windy Benjamin sent on Bloomberg's balance of power, says, it is hard to figure out what he is really thinking.
And he thinks they're just going to go along with the plan. I guess that's what he thinks.
But if he were a speaker who had a lot of power behind him, who had a lot of support behind him, who wasn't elected on the fifteenth ballot, that could be a good play. But it's clear his caucus doesn't believe him.
It is dead in the Senate anyway, and the White House says we'll only talk about the Deat ceiling as a separate piece of legislation. Florida Governor Ron de Santis has met with Japan's Prime Minister Fumio Kishi to today in Tokyo.
You see a lot of opportunities to build on our business and economic.
Ties that Desanta says good for Japan. What is good for Japan? Is good for America. Cable TV is jettison two of their more inflammatory and controversial hosts, Fox News announcing that Tucker Carlson's last show was last Friday. Bloomberg's Felix Gillette says Dominion settlement was a takeoff point for this and that Rupert Murdoch treats people like Carlson as replaceable.
Murdoch has always felt confident that he can replace the talent, even if it's someone like Tucker Carlson, who's currently the top rated primetime.
Host for Fox News.
You think back of when Fox News got rid of Glenn Beck, Red Events, Sustron, Meg and Kelly. They're always this question, Oh, how are they going to recover? And yet whoever they plug into those time slots always seem to do it.
Carlson was due to testify at the trial, but the emails it would have been presented we have shown Fox is knowingly reported lying on the other side of the spectrum. Almost at the same time, CNN Don Lemon Boom.
Don Lemon has been, you know, going from one controversy to the next for the last couple of months. They brought him back after he made these comments about Nikki Haley. That upset people. You know, the problem with Don Lemon is not only is the generating negative headlines for CNN, but also the ratings have been lousy.
Well, I will do it.
Carlson's departure from Fox estimated will cost six hundred and ninety million dollars in worth, shares falling as much as five point four percent. Today, Global News powered by more than twenty seven hundred journalists and analysts and over one hundred twenty countries. In San Francisco, I'm at Baxter and this is Bloomberg.
I'm Brian Curtis along with Rushad Selama, and we have it Backstraw News as we just heard there, and also Doug Crisner looking at markets. And our guest, a live guest, Carol Pepper, a founder and CEO of Pepper International. Carol, there was a lot of anticipation about First Republic's earnings, so let's take a moment and just have a quick look. I mentioned that this is sort of the banking turmoil that didn't really develop into a crisis.
Lots of reasons for.
That, but one thing appears clear that it's going to be very hard for the regional.
Banks to earn their way out of the position that they find themselves in.
Can you see the regional banks coming back from this, well, I mean.
I think there'll always be a place for regional banks, but I agree with you, the headwinds are definitely there. I think it's going to take a long time. I mean, there has to be some change hopefully coming in terms of how they measure the belt and suspenders for the regional banks, and I think they will do that, and I think that.
I mean, if nothing else, they just need a lot of time, right because all those unrealized losses, they don't want to have them realized, and so you've got to you've got to wait till maturity.
So that could be years and years and years.
Down the road. No, I don't think they're going to have to wait to maturity. But I do think if we get some rolling back of those regulatory cuts, in other words, to put the regulations back in place, that will that will increase security for the banks and people's ability to be confident. And I think the second thing will be if rates start to go back down again and give them a little bit of a breather so the losses aren't so large. So those are the two things that we have to look for.
Carol, though.
I mean, the thing is they're going to be very judicious. In fact, that is the word that was used by the Huntington Banks Shares a CFO to Bloomberg the other day when it comes to lending. Judicious means they're going to have to raise their standards, which is going to be probably the case with most of these regional banks, which ten of course, means that we have a problem with the with the companies and smemes in particular getting money, and that is another form of perhaps.
Tightening correct I think, well remember too, First Republic also, most of their loans were mortgages to ultra high net worth individuals. This was not a credit issue on them at all. They were doing ten years no interest loans. So they got stuck with this huge geno bullet at the end, which of course flaps around quite a bit in terms of value, and the rates went up, that went down significantly, So it wasn't really a credit issue.
It was it was how they structured these bonds, which seemed frankly a little bit surprising that they couldn't have anticipated that some point in ten years the rates would have gotten up. So in this case from First Republic, their credit was stellar. This was not a problem for them. It was this interest only lending thing for ten years that they've got to stop doing.
In the broader markets, who haven't had a lot of movement of lad although we have had in individual companies, but not so much in the broader picture. Are you waiting on a catalyst? Is there a catalyst coming for more direction in markets than what might it be?
Well, I think even this week will be interesting for the tech names. You know, I'm a big tech bull, so I'm anticipating Amazon will give us a good story. And you know, again, once we get a clear picture of when these rate hikes are going to stop, you're going to see the rest of the markets start to run again. Because generally the economy is doing fine. This
was a FED induced slowdown. This is not because the fundamentals of the companies were bad and they were slowing down organically, but because interest rate and cost barring costs have gone up. It has given all of the companies also frankly, an excuse to lay off a lot of employees. So guess what happens they do the layoffs those costs aren't coming back, and now if the boring costs go down, suddenly there a much better position. They have more cash
and they could start moving forward. So I think that the catalyst will be, you know, when we see the I mean, I just don't think they can keep hiking for too much longer because the big ticking time bomb is the real estate loans. Honestly, I mean, the real estate developers are all hanging on here, but at a certain point they're going to run out. You're going to see a lot more bank problems if you don't lower those rates.
Absolutely, So in that environment, who does well. You're a fan of tech, You're also find of medicare.
Medical yes, drug companies for example, there's some really exciting blockbuster type of drugs that are coming along, the weight loss drugs Eli Lilly for example, with Goovy. The minute that that gets approved to use for weight loss, that thing is going to be excuse me, Monjarno for Eli Lilly and then Wagovy for Nova Nordisk. They're actually just announced today that they're going to do a head to head competition and study which one is going to be better.
But the general thought is probably Munjaro is going to win, and that's a multi billion dollar opportunity. There are also wonderful new cancer drugs coming along. There's genetic medicine happening. So I do think there are certain categories like technology and drug development that will go do well regardless of where the interest rates are, because these are things people have to use.
It is a difficult environment where you have basically half the people think we are heading toward recession, and that changes a lot of calculations for sure. I mean it would mean that you know, the twenty five percent draw down last year isn't enough probably if.
You actually hit a full blown recession.
Right, So it doesn't sound like you're too expecting of that. But can you outline or you know, give us your thoughts on where we're heading in say the middle term here on the economy, Well, when you.
Say middletar, I would say the rest of that. Let's just look at where you know, let's say we're beginning the next quarter here, if we look at by the summer, if we look at by this summer, if the Fed stops raising, which I believe they will at some point June or July, the outside outside because things are slowing down on their own from what they've already done. And it also always happens this way that it takes a few months for the raises to actually start to slow
the economy. Let's say it starts to go through then I think, you know, the will be sort of sideways through the summer and then maybe take off again in the fall. Okay, that's one possible scenario. I personally don't see the recession. I don't see enough science to convince me that a major recession is happening. However, if you're afraid of that, my advice would be throw your money into the money market funds and earn four and a half percent right now, and just stay out as long
as you're that frightened. Just stay in the money market funds and wait to see what the Fed does. You don't have to, you know, the day after the Fed moves is still plenty of time for the average investor to get into the market. Just sit in those nice, you know, Treasury backed money market funds and earn your four and a half percent right now, and it will only go up if you're right. You learn five or
six percent. Then you can wait so when you feel that the pain is over, and then look for some period around the month or two when the term is coming, and then go back in. So for those listeners who are very frightened the money markets, there's no shame in the money market. Sit over there and wait for those who think, eh, I really want to get in now, I'm afraid it's going to go higher. Then look at big tech names. Look at big you know, blue chip names.
Those always do well regardless. So if you want to be a little ahead of the curb and you want to take the risk, go into bloo chips. If you don't, don't, All right.
Carol, thanks very much for joining us. Carol Pepper, founder and CEO of Pepper International. This is Bloomberg Daybreak Asia, your morning brief on the stories making news from Hong Kong to Singapore and Wall Street.
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I'm Brian Curtis.
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